<p>California has historically faced severe droughts and is expected to experience more in the coming years. Past droughts have caused numerous social, physical, and economic impacts, which have been worsened partly by the state’s growing population, climate change, and increasing demand for its already limited water resources. Unlike other natural disasters, droughts often lack clarity in their visibility, presence, and effects. As a result, their impacts are frequently overlooked until water shortages severely strain water-dependent infrastructure and populations. The gradual development and often delayed recognition of drought make it one of the most difficult natural disasters to measure comprehensively. Therefore, having more accurate data on California’s drought and its impacts could greatly improve the development of more effective mitigation strategies. To support this, the paper presents a methodological framework along with a decision-support tool to assess economic interactions across industry sectors in California and quantify the economic losses and operational disruptions caused by various drought policies. The methods involve gathering survey responses from water experts, which are then used in a dynamic inoperability input-output model to perform sensitivity analysis of different policies and their effectiveness in reducing economic losses from drought. The model’s validity is validated by comparing its outcomes for a specific scenario with existing literature on economic loss estimates. Applying these methods can help future research on droughts and other natural disasters by providing a solid framework for analysis.</p>